"When you clock the human race with the stopwatch of history, it's a new record every time" - Firesign Theatre.
Res ipsa loquitur

Tuesday, November 28, 2006

Well, as I suggested I would do, I submitted a letter to the PG. They called and said they might publish it, so I will wait to put it up here. I will say generally I suggest the democrats propose a small increase in minimum wage as well as a bump in the EITC.

What I want to do here instead is talk a bit more about the minimum wage. My thinking on it has evolved a bit, and is still evolving. I have looked a bit for research on it, but mostly I have only found partisan stuff, the Economic Policy Institute (EPI) on the left and the National Bureau of Economic Research (NBER) on the right leaning side.

So here’s the thing: I was interested in particular in the question of whether increases in the Minimum Wage (MW) has any negative effect on employment. Of course, this is based on the assumption that an increase in labor costs will force companies to fire more expensive workers or will force companies to raise prices, which will reduce demand for the companies products, reducing income, which will result in layoffs. The EPI had, I believe, only 2 papers that dealt specifically with this subject, one from the 97 increase and one dealing with state increases in the minimum wage. The 97 increase came during a booming economy, so we would expect to see drops in unemployment anyway. The state paper chose 3 states out of a bunch, and I couldn’t help notice the graph that showed most of the states with higher MW’s than the Fed have high unemployment. Except that the study covers the time period of the last few years, when the whole country went through a recession.

The NBER paper was fairly interesting (I did download the paper, but now I don’t remember how, and all the Google citations seem to be restricted to subcribers; you might try going through the Wikipedia article on MW, and the comments page). They said that an early study (1981) showed the disemployment effect (among teen MW workers) expected by classical economic theory, but it has not been seen in studies since. So let’s be clear. At least one set of “real” neo-classical economists have abandoned the idea that the minimum wage causes unemployment, among teens or anyone. All those business men who say raising the MW will make them fire people are blowing hot air. The NBER survey of some 150 studies shows it.

Except that the NBER did not let it go so easily. What they said was that a preponderance of the studies showed a positive correlation with an effect on future hiring decisions and an increase in the MW. So raising the MW now means that some fewer number of people will get hired in the future. Something of a policy conundrum. Mind you, this is a survey of a bunch of studies talking.

I will advance my own silly theory about this, but I doubt I will win any friends. My idea is based on the thought that a lot of MW workers shop at places that employ MW workers. Not so many MW workers in occupations that require high skills and so produce expensive products or services. So when the MW goes up, places that employ MW workers may actually see an up tick in revenue, because their workers and other MW workers have more disposable income and can and do spend it. This spending spree may not last too long, though, and after a while businesses (employing MW workers) may raise prices to cover the higher labor costs. With their higher wages, MW workers may simply absorb the higher costs. Any higher wage earner who simply shops at cheaper places to stretch his paycheck may be dismayed to find higher prices (the $1 and a half store). The actual result we could project, based on my silly theory, is slightly higher inflation. Otherwise mostly a wash, workers no better off with a higher MW.

I come back to my favorite cause, the earned income tax credit. In my letter to the PG, I suggest offsetting a higher EITC with a higher tax bracket for the very rich. This has the symbolic beauty of literally taking from the rich and giving to the poor. Maybe the (made up) numbers (from the top of my head) wouldn’t work, but it would be a lot of fun.

Wednesday, November 15, 2006

So I am compelled back to my own blog because I had created a sort of minor dust up on another blog. I waded in a bit on tangential posts about the democrat’s plans for the new congress, strongly suggesting a bump in the EIC over a raise in the minimum wage. In the back and forth, I admitted I had done no particular research on this, and in turn was chastised for not being interested in “facts”. The blog in question (*cough* 2 politicaljunkies) is very partisan, with liberals and conservatives trading what are, in my opinion, very unhelpful insults back and forth, with little content.

So here’s the thing, as far as the minimum wage goes, my gut instinct is that there are not a whole lot of helpful facts out there, because it is one of those big economic issues that are very difficult to study. After the fact, I went to the web to look a little at what is out there on the minimum wage. I found various partisan studies on the increasingly unhelpful Google, nothing on what the Congressional Research Service has released to the public (cowards). The Wikipedia has an interesting page, however. Bearing in mind that the Wiki could be influenced by partisans, I found their treatment of the subject compelling. The page states that almost 50% of economists believe a MW hurts low end workers, another roughly 25% partly believe that, and 25% reject the idea. A breakdown not unlike the overall political breakdown in the US, showing that economists population has its own partisans (or something like that). By the ways, that question was asked in the abstract, not based on a study or real life data. To be sure, the Wikipedia also pointed out that Europeans have largely accepted minimum wages, though the Wiki cited data that could support either side (no jobs effect, a weak hiring effect). And the Wiki pretty well indicated that there have been no break through studies, and the studies that have been done have problems and are not universally accepted.

I can see this too. Any regional study will have muddy effects based on worker mobility. National studies will have problems because of other factors influencing employment at the time. The economy was good in ’96, the labor market tight, so of course a minimum wage hike had little effect. The opposite was true in ’92, but would we blame unemployment on the recession or the MW hike?

The thing is that the MW carries negative connotations with business. Does the new democratic run congress need to alienate business?

Wednesday, November 08, 2006

Where have I been? Well, I have the two jobs, and right at the beginningof September I had gone on vacay. So anyway, I have lurked on the blogs of others, posting contrary comments and making fallacious predictions. It’s a tough life …

I posted the below elsewhere as a comment, so I am plagiarizing myself.

I have a wee theory about Rumsfeld resigning. When I looked at Gates on Wikipedia, I noticed that Tenet had resigned well before the ’04 election. Obviously if Rummy had resigned a few months ago, someone like Lincoln Chaffee or Melissa Hart might have had a fighting chance with independent voters. But the Lincoln Chafee’s were already trying to distance themselves from Bush. My theory is that since Bush felt he had to do something, most likely get rid of Rumsfeld, he timed it to send a message to the members of his party who had distanced themselves from him. Bush in effect said “I could have helped you, but I don’t reward disloyalty” Yeah, I know Rumsfeld was loyal to a fault, but I guess Bush felt compelled there. I just think he timed it to send a message. We’ll never know, though.

Chatting with a co-worker, she was talking about how she just agrees with the democrat’s proposals, such as national health care and an increase in the minimum wage. Ok, I think we should talk about national health care absolutely, but the minimum wage? I think, far better than punishing employers who hire low wage workers, we (tax payers) share the burden and increase the earned income credit. It is an increase in the minimum wage of grown-ups, of heads of household who really are taking care of families. It’s probably not perfect, but at the same time it is not a pay raise for spoiled teenagers raising money for more concert tickets and beer.